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Articles

date: 24-05-2016 14:16:54

Invetsment procedures - More amendents more troublesome


 


  

The article written by Lawyer Pham Thi Hai Yen and Ms. Nguyen Thi Hong Hien, is published in The Saigon Economic Times dated 24/03/2016.

For more information about Ms. Yen, please click here

For more information about Ms. Hien, please click here

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The enactment of the Law on Investment 2014 (the applicable Law on Investment) is expected to simplify the administrative procedures, reduce the time consuming for issuing licenses. However, in practice, with the application of law as present, licensing procedures applicable to investors are not improved but even more complicated.

Asking for in-principal approval for investment: applied arbitrarily

In-principal approval for investment is the first step in the investment registration process. Upon obtaining the in-principal approval, the investor will be issued with the Investment Registration Certificate to run projects and carry out the procedures for obtaining the enterprise registration certificate to establish enterprises.

According to the Law on Investment 2014, in-principal approval shall only be applied in some certain cases such as for special investment projects that need to obtain in-principal approval of the Assembly, the Prime Minister or provincial – level People’s Committee. Despite of this regulation, in reality, the in-principle approval is applied arbitrarily and inconsistently with the original idea of the Law on Investment.
We was witness to a domestic engineering enterprise that wants to set up its subsidiary in the industrial park had been required to get the in-principal approval from the provincial People’ Committee although its capital and business lines are not subjects of the in-principal approval. For detailed information, it is only internal rules from the provincial People’s Committee and applicable to all of the new enterprises in the industrial parks within the province.

Another province issued the regulations that manufacturing enterprises out of the industrial parks, regardless of domestic enterprises or foreign-invested enterprises, all of them have to ask for in-principal approval before performance of the project.
Since the Law on Investment 2014 is in the rough draft, in-principal approval has been objected because many people have worried that the in-principal approval would be applied arbitrarily in practice. It is not only a barrier to performing investment project but also creates opportunity for take advantage of the mechanism. The reality eventually proved that this worry becomes true.

In case of such enterprise, in order to perform its project, it is the fact that the enterprise has to ask for three types of licenses: (i) the in-principal approval of provincial-level People’ Committee; (ii) the Investment Registration Certificate (“IRC”) of the management board of industrial parks in province; (iii) the Enterprise Registration Certificate (“ERC”) in the Department of Planning and Investment. However, if in compliance with the Law on Investment 2014, it merely needs to carry out the procedures for obtainment of the ERC to perform the project.

M&A procedures: increase but not decrease

According to the previous Law on Investment, in case of merge and acquisition of an enterprise (M&A), the investor has to register for capital transfer for a purpose of being issued the ERC. After that, depending to business lines of an enterprise or capital share ratio of foreign investor, the enterprise is required to proceed the procedure for obtainment of the investment registration certificate as the result of involvement of a foreign investor contributing and purchasing shares.

In fact, the M&A procedures under the Law on Investment 2014 are more complex.

At first, an investor has to register the planned M&A transaction with licensing authority with a view to getting the written approval prior to carrying out the transaction. Upon the approval, the parties will register for M&A transaction in order to be issued with the ERC recording the name of the foreign investor.

Pursuant to the Law on Investment 2014 and Decree No.118/2015/ND-CP, after acquiring capital, foreign investors or enterprises shall not be required to proceed further procedures for obtainment of IRC therefore the M&A procedures are likely to be done. Nonetheless, licensing authorities still request the enterprise to ask for IRC.

The practice partly comes from the conservative viewpoint in interpretation and application of law but is partly as the cause of unclear Decree 118. Article 46.4 of Decree 118 regulates that an enterprise having foreign investor who contributes capital, purchases shares “shall not be subject of procedures for issuance, amendment of IRC or in-principal approval applicable to investment projects performed before the time that foreign investors contribute capital, purchase shares”. Nevertheless, the Decree 118 did not clear the important issue: after the time that the investors contribute capital, purchase shares, whether the enterprise has to proceed the procedures for issuance of IRC or in-principal approval or not? The answer of licensing authorities is: Yes!.  

Under the spirit of the Law on Investment 2014, the IRC is issued to an investor(s) for implementing its/their investment project(s) in Vietnam. The IRC may be understood as the visa for the investor to invest into Vietnam. Based on the visa, the investor registers to purchase shares or capital contribution and the BRC will record and reflect the change on the capital purchase. When IRC is issued, it means the visa is no longer valuable. What is the logic of the request where a foreign investor is required to apply for the IRC after completion of the capital contribution? It is no difference with the case where a foreigner obtaining the visa to enter into Vietnam, but when being in Vietnam, he/she is required to return to apply another visa with the same purpose and same term.

Doubling the procedures for adjusting the information on enterprises’ registration or investment project’s registration

Previously, a foreign-invested enterprise operates under the investment certificate which is concurrently the BRC of such enterprise. Hence, when the enterprise changes the information on business registration and/or investment registration, the enterprise only needs to register for adjusting the investment certificate.

However, under the Law on Investment 2014, the investment certificate is separately divided into two certificates: the IRC for registration of an investment project and the BRC for registration of an enterprise. The IRC is issued by the foreign investment sub-department of a department of planning and investment or the management board of industrial zones, while the BRC is issued by the business registration sub-department of the department of planning and Investment. It leads to the fact that if an enterprise has any adjustment related to both enterprise and investment content, the enterprise must carry out both enterprise registration procedures and investment registration procedures.

In practice, there is the case where it takes 2 months for an enterprise, whose head office is changed from an old building to the opposite building, to register for amending the head office’s address as recorded in the BRC at the business registration sub-department and adjusting the investment project’s location as recorded in the IRC at the investment registration sub-department. The ridiculous here is that both the business registration sub-department and investment registration sub-department are under the department of planning and investment but it seems there is no connection between them. Consequently, the enterprise, by itself, must contact with two State bodies to submit two similar application dossiers for only one change.

Even if the enterprise does not separates its investment certificate into the IRC and the BRC, the enterprise must carry out the procedure of separation of the certificate at the same time when registering for adjusting the information on head office. In fact, for 10 years (from 2005 to 2015), the law on investment has changed for two times, foreign-invested enterprises have experienced two times of conversion of their establishment certificates. Firstly, the investment license was converted into the investment certificate. Secondly, the investment certificate was converted into the IRC and BRC. These conversions are not compulsory, however, as analyzed, when an enterprise carries out any procedure related to adjusting the investment content and business registration concurrently, the enterprise must carry out the conversion procedure at the same time as mentioned above in order to register for the respective adjustment. It greatly troubles enterprises and wastes a lot of their time and money.

When the actual reform is happened

The fact indicates that local licensing bodies are currently applying the old practices that conflict with the spirit of the Law on Investment 2014, consequently, the investment procedure is more and more complicated, inconsistent and mostly depends on the view of officers in charge but not the laws.

Maybe it is time for the licensing bodies to have a sit-down and study the actual spirit of the Law on Investment 2014 and build up the standard and consistent procedural manual to minimize the administrative procedures for investors. 

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